How to Actually Use the $1000-a-Month Retirement Savings Rule

I love simplicity. But sometimes, even if you avoid the trap of over-simplifying things, the simple answer is far from easy.

        Steps For Figuring Out How Much You Need To Retire, And How To Get There Without Letting Despair Overwhelm You


Step 1: Going From Annual Salary To Estimated Amount Needed In Retirement

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To figure out how much income John needs to replace in retirement, we’ll use T. Rowe Price’s guideline of 75%.

Let’s use a hypothetical guy, John, age 40, who makes $80,000 a year, putting him above 56% of Americans. 

Step 2: Using The $1000-A-Month Rule To Get A Rough Estimate Of Nest Egg Needed

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With no clear reason to prefer higher or lower rates, John plans to draw 3.5% of his nest egg in year 1 of his retirement, and update that dollar amount each year thereafter to account for inflation.

John starts hyperventilating.

Step 3: Breathe

Step 4: Growth Of Existing Investments

John started saving for retirement, but has a below average (for his age) balance of $10,000.

Step 5: Social Security

Based on the Social Security Administration’s benefits estimator, John expects $2200 in monthly retirement benefits at age 65.

Step 6: Regular Investing Helps

John has some time on his side. For every dollar he invests annually, assuming the same historic average of 10%/year returns, he expects to end up with $98 in 25 years.

Step 7: Work An Extra Couple Of Years Before Retiring?

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This has multiple advantages.

If John continues working part time for another 3 years after he turns 67, just enough to earn $2500 a month, he can make his life easier now.

Step 8: Work Part-Time For Another 3 Years

Step 9: Spending In Retirement Gradually Decreases

According to, research shows that retirees don’t continue spending at the same level (adjusted for inflation) throughout retirement.

The Bottom Line

John’s example gives you a step-by-step method to figure out how to use the corrected $1000-a-month retirement savings rule to figure out how much you should invest each year for retirement.